Updated ITR-U Filing: What Taxpayers Need To Know About Using ITR-3 And ITR-4 Forms?

Missed the income tax filing deadline? Forgot to disclose some income while filing your return? Until recently, taxpayers had no choice but to live with the mistake, fearing penalties, scrutiny, or worse.

Every year, a large section of taxpayers either fail to report certain incomes or skip filing taxes altogether owing to confusing tax laws. However, the risks of such non-compliances are serious, especially relating to undisclosed foreign income and assets that can trigger proceedings under the Black Money Act.

Crypto gains that go unreported attract scrutiny under the Virtual Digital Assets (VDA) regime, and the Income Tax Department has recovered more than INR 600 crores only using tax notices to VDA investors, and small businesses earning more than Rs 2.5 lakh annually face penalties for non-filing.

The Updated Income Tax Return (ITR-U) was introduced to deal with these tricky but genuine situations. It gives taxpayers a simple route to come forward voluntarily, disclose missed income, and file their ITR before the tax department detects it and issues a notice.

ITR-U Window Extended: Taxpayers Get Relief With 4-Year Filing Period

Budget 2022 introduced the updated ITR (ITR-U), aimed at allowing taxpayers to file a tax return even after the tax deadlines have long passed, irrespective of whether income was omitted, foreign assets were left undisclosed, or no return was filed at all.

"The filing of ITR-U is also very simple. Calculate tax on income and pay the tax along with interest and an additional penalty along with a form showing additional incomes declared. This helps avoid harsher consequences of concealment proceedings later on from the Income Tax Dept," said CA Sonu Jain, Chief Risk and Compliance Officer, 9Point Capital.

"Moreover, the ITR-U facility was restricted to a two-year window from the end of the relevant assessment year when first introduced in Budget 2022. For taxpayers with complex incomes, foreign disclosures, or crypto transactions, that was often too short, and issues surfaced much later. Recognizing this gap, Budget 2025 extended the ITR-U window to four years from the end of the assessment year now," CA Sonu Jain added.

Equally significant, updated returns filing through ITR-3 and ITR-4 are also made live on the tax portal. These forms apply to individuals with business or professional income, including those under presumptive taxation.

Missed Tax Filing? Updated ITR Comes With Steep Penalties, Not Refunds

ITR-U does come with certain conditions, though. A taxpayer who files an updated return must pay not just the tax and interest due but also a penalty, which is about 25% if filed within 12 months, 50% if within 24 months, 60% if within 36 months, and 70% if within 48 months from the end of the assessment year.

"The scheme is not intended for reducing tax liability or claiming fresh refunds, since a separate procedure exists for condonation of delay in filing ITR in such cases. Further, even loss returns, NIL returns, and cases in which notices or summons under search, seizure, or reassessment proceedings are initiated are also not eligible for updated ITR," commented CA Sonu Jain.

In other words, ITR-U is a disclosure window, not a refund mechanism or a mitigation mechanism when faced with a tax notice.

Missed Overseas Assets or Remittances? Updated ITR Can Save You

The risks are substantially higher for taxpayers with foreign income or undisclosed overseas assets. The Black Money Act carries huge penalties and even prosecution for failure to report.

"In such extreme situations, ITR-U offers a practical way to come clean voluntarily before the taxman detects the omission. While the additional tax may feel outrageous, it is, in comparison to the consequences of proceedings under the Black Money Act, lower," said CA Sonu Jain.

Small businesses and professionals also stand to gain from the enabling of ITR-U filing for ITR-3 and ITR-4. It is common for businesses to miss some income entries during busy accounting cycles or overlook foreign remittances.

"Discovering these errors later often leaves them in a blind spot. With a four-year correction window now available, they have the chance to reconcile their accounts and voluntarily disclose missed income without fear of disproportionate penalties or worse, tax notices," CA Sonu Jain added.

ITR-U Filing Becomes Your New Record-Disclose Carefully

Taxpayers must nevertheless approach this route carefully. Once an ITR-U is filed, it becomes the new record, and the reasons for updating must be clearly stated in the disclosure schedule. Losses cannot be carried forward through an updated return, so the decision must be well-informed.

Thus, the government's move to extend the ITR-U window is a welcoming step to include more people in the tax ecosystem while also encouraging voluntary compliance.

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